Download Word

The Czech Economy Development in Q1 2008
June 2008
External economic relations
 The external
balance of the
economy is
virtually unchanged
year on year
Already for the fourth year in a row, it is typical for the external balance of the Czech
economy in the first quarters to have a surplus on the current account of the payment
balance and a deficit on the financial account. The deficit result on the financial
account was well covered by the surplus on the current account. The trends of the
individual components of the current account remained basically the same -- its
surplus was strengthened by foreign trade with goods and services and the return of
the balance of current transfers into the positive territory. Conversely, it was
weakened by the income balance.
The surplus of the current account (27 billion CZK) reached, on a quarterly basis, 3%
of GDP in current prices and in comparison to the 1 st quarter of 2007 was slightly
higher (22.6 billion CZK, i.e., 2.7% of GDP). Foreign trade with goods and services
contributed positively to it by 65.4 billion, mainly due to services - the balance of trade
itself (41.7 billion CZK) was slightly weaker against a comparable period (45.7 billion
CZK), but on the other hand the surplus of the balance of services (23.7 billion CZK)
was double (12.1 billion CZK) year on year. The balance of income continued in its
fall into the historically deepest deficit (-43.7 billion CZK). It was caused both by the
growth of costs, as well as a non-traditional decline of income, which decreased by
4.7 billion CZK in a year on year comparison. The balance of current transfers was
highly positive (+5.4 billion CZK), with the highest surplus since 2005.
 The deficit of
the financial
account was
increased by the
more moderate
inflow of direct
investments from
abroad
The financial account was in a deficit, as in every 1st quarter since 2005 - the deficit
(7.4 billion CZK) was slightly deeper in comparison to the same period of 2007 due to
the influence of a smaller net inflow of foreign direct investments (28.8 billion CZK
against 37.2 billion CZK in the 1st quarter of 2007). On the other hand, direct
investments of Czech companies abroad (7.9 billion CZK) were approximately double
in comparison to the same period of 2007, as Czech companies provided capital to
their foreign acquisitions. The item Other investments worked in the direction of the
reduction of the financial account deficit, with a year on year more favorable balance
(-15.2 billion compared to –24.1 billion CZK).
 Portfolio
investments were
especially in the
name of sales
The uncertainty on the capital markets manifested itself in the retreat from positions in net terms, investors were selling - residents their foreign securities, non-residents
their investments in the ČR (this occurred in a massive extent in March). This trend
was evident mainly on stock markets – non-residents (net) sold Czech asset
securities and participations for 10.9 billion CZK and bonds for 3.4 billion CZK. The
result of net transactions by residents was the return of capital into the country, in
combination of the purchasing of foreign stocks (9.4 billion CZK) and selling of foreign
bonds (10.8 billion CZK). On aggregate, however, the balance of portfolio
investments (-13 billion CZK) indicates a lower outflow of capital from the country in
comparison with the 1st quarter of 2007 (-19.6 billion CZK).
 Foreign trade
with goods slowed
down its pace
The dynamics of foreign trade with goods, after eight quarters of double digit year on
year growths, decreased to one digit values. For January to March, exports grew by
5.7% and imports (in cif prices) by 7.2%.
Exports are showing an extraordinary linkage to EU 27 – during the first three months
of 2008, 86% of Czech exports went there (for imports, the similar ratio was 68%).
The highest year on year dynamics were exports to Russia (+27.5%). But in terms of
value, exports to Germany were 13 times higher (+2%), which is the largest trading
partner of the ČR. Czech exports to EU 27 grew somewhat slower than the dynamics
of the total exports from the ČR – by 4.7% in comparison to the first three months of
2007. The year on year gain in imports (in cif prices) was higher in the 1 st quarter in
comparison with exports. Fastest, by a quarter, grew imports from Russia, the value
of which was influenced by the price of oil (only partially compensated by the rapid
strengthening of CZK to USD). Imports from China grew by one fifth.
 The price
competitiveness of
the Czech economy
declined
The change of the index of the real effective exchange rate of the Crown (REER)
show a significant decline of the cost competitiveness of the Czech economy, in both
the year on year, as well as - even stronger - quarter on quarter. But this is natural,
with regard for the transfer of the country from a low-cost economy into the group of
mid-income countries according to GDP per inhabitant in purchasing power parity.